Opposition Brief — Selaiden Builders, Inc. v. Federal Deposit Insurance

a

No. 92-1307

() BER TERM, 1992

BRIEF FOR THE RESPONDENT IN OQPPOSTETION

QUESTION PRESENTED

Whether the FDIC was entitled to summary judgment

on a promissory note.

(1)

TABLE OF CONTENTS

Neen een eee Lakin s cai buhinesasebaveKansenciacanccsssavecee

ES

Neen ns ueabaceubteansacacneceneuecsecees

Nee css hecseayandsanabsenessnanssiinseeans Fusiiawbhes

a . ceahamasasnucesenneessscences

TABLE OF AUTHORITIES

Cases:

Alerander v. Houston Oil Field Material Co., 386 S.W. 2d

540 (Tex. Civ. App. Tyler), writ ref’d, n.r.e. (Tex.

Nee ia Aicackoanasenasneesssbicseneasnennsecs

Celotex Corp. v. Catrett, 477 U.S. 317 (1986)...................

FDIC vy. Cardinal Oil Well Servicing Co., 8387 F.2d 1369

Neen a ccs ananbatnyansundennevenenasens

FDIC v. McCrary, 977 F.2d 192 (5th Cir. 1992) ..............

Gotcher v. Lamar State Bank, 714 S.W.2d 365 (Tex. Ct.

App. Beaumont 1986), writ ref’d, n.r.e. (Tex. 1987) ....

Lawson v. Finance America Private Brands, Inc., 537

S.W.2d 483 (Tex. Civ. App. El Paso 1976) ....................

Life Insurance Co. v. Gar-Dal, Inc., 570 S.W.2d 378

Neen eee abs nce cbunsenasebateversscaccascncenses

Lloyd v. Lawrence, 472 F.2d 313 (5th Cir. 1973) ....... ......

Pee We teeee, ee Fe Oe Cae Cir, TOGR)..........0...s.cccccseees

State Sav. & Loan Ass'n v. Liberty Trust Co., 863 F.2d

Nee gcc s cds a cbincbuaescexeduhaubannsennccsaecsss

Texas State Bank & Trust Co. vy. St. John, 108 S.W.2d

1104 (Tex. Civ. App. El Paso 1937), writ dismissed,

Ne grr cach vanchsansnavasnasbasiaxaeuscanessnevess

Statutes and rules:

Financial Institutions Reform, Recovery, and Enforce-

ment Act of 1989, Pub. L. No. 101-73, 108 Stat. 183 .......

§ 401(a), 12 U.S.C. 1437 note (Supp. IIT 1991) ............

(IIT)

Page

we — —

ol

10

3

lV

Statutes and rules—Continued:

§ 401(h), 12 U.S.C. 1487 note (Supp. III 1991) ...........

Fed. R. Civ. P.:

NNR TE oa swab cuanachaksueaicansanamunbnkand tusuinen kaha tebASeaSeee

I I oo aa nc on cestrgwninis cesle sonnel aa INGEN cabo Aa an

SE, PEE: DTULNOED PN A Ren aPE RA Me OL Noni Mens ene Mtomem

In the Supreme Court of the Gnited States

OCTOBER TERM, 1992

No. 92-1307

SELAIDAN BUILDERS, INC., ET AL., PETITIONERS

Vv.

FEDERAL DEPOSIT INSURANCE CORPORATION

AS RECEIVER OF VERNON SAVINGS AND. LOAN

- ASSOCIATION, F.S.A.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1-13)

is reported at 973 F.2d 1249. The order of the district

court (Pet. App. 14-15) is unreported.

JURISDICTION

The judgment of the court of appeals was entered on

October 1, 1992. A petition for rehearing was denied

on November 6, 1992. Pet. App. 23. The petition for a

writ of certiorari was filed on February 4, 1993. The

jurisdiction of this Court is invoked under 28 U.S.C.

1254(1).

(1)

2

STATEMENT

1. On August 24, 1985, Selaiden Builders, Inc. exe-

cuted two promissory notes payable to Vernon Sav-

ings and Loan Association of Vernon, Texas (Old

Vernon) for $509,800 and $433,000, respectively.

Robert Selaiden, Charles Selaiden, and Jack

McJunkin each executed unconditional guaranties on

the two promissory notes; the Selaidens’ guaranties

covered the full amount owed on the notes, while

McJunkin’s guaranty was limited to 60% of the

amounts owed on the notes. Selaiden Builders, Inc.

defaulted on both promissory notes when they be-

came due in April 1986. See Pet. App. 2-3.

On March 20, 1987, the Federal Home Loan Bank

Board (FHLBB) declared Old Vernon insolvent and

appointed the Federal Savings and Loan Insurance

Corporation (FSLIC) receiver for Old Vernon. Simul-

taneously, the FHLBB created a new savings and

loan association, Vernon Savings and Loan Associa-

tion, F.S.A. (Vernon FSA), and approved an acquisi-

tion agreement between FSLIC as receiver for Old

Vernon and Vernon FSA, whereby Vernon FSA

acquired substantially all the assets of Old Vernon.

On the same day, the FHLBB appointed FSLIC

receiver for Vernon FSA. Pet. App. 3.

2. FSLIC as receiver for Vernon FSA sued

petitioners in the United States District Court for

the Northern District of Texas to collect under the

notes and guaranties executed in favor of Old Vernon.

Pet. App. 3. The $509,800 note had been endorsed

“Pay to the order of Federal Deposit Insurance

Corporation as Manager of the FSLIC Resolution

Fund as Receiver of Vernon Savings & Loan.” See

3

Pet. App. 12. The $433,000 note had no endorsement.

Petitioners asserted several affirmative defenses, as

well as a counterclaim and a claim of offset based on

an unrelated note that Jack McJunkin had purchased

after suit had been brought. /d. at 3-4.

The Federal Deposit Insurance Corporation as

receiver for Vernon FSA (FDIC-Receiver)' moved for

summary judgment on the notes and guaranties and

to sever petitioners’ counterclaim and claim of offset.

In support of the summary judgment motion, FDIC-

Receiver attached affidavits from Robert St. John, an

asset manager of FDIC-Receiver, and Wilma Howl,

the custodian of records for FDIC-Receiver who had

served in a similar capacity with each of the

predecessor institutions of FDIC-Receiver—FSLIC

as receiver for Vernon FSA, Vernon FSA itself, and

Old Vernon. See Pet. App. 11 & n.12. The St. John

affidavit stated, interalia, that FDIC-Receiver

owned the notes and guaranties and that they had

been acquired from Old Vernon through Vernon FSA.

C.A. Ree. Exe. Tab 7, at 13. The Howl affidavit stated

that FDIC-Receiver “owned” the notes and guar-

anties and that they were previously “owned” by

FSLIC as Receiver for Vernon FSA, Vernon FSA,

and Old Vernon. /d. Tab 8, at 78.

Petitioners moved to strike the affidavits of St.

John and Howl. The district court denied that motion.

Pet. App. 17-18. After ‘initially granting FDIC-

1 The FDIC succeeded FSLIC as receiver for Vernon FSA

pursuant to the Financial Institutions Reform, Recovery, and

Enforcement Act of 1989 (FIRREA), Pub. L. No. 101-73, 103

Stat. 188. See FIRREA §§ 401(a), 401(h), 12 U.S.C. 1437 note

(Supp. ITI 1991).

4

Receiver’s motion for summary judgment only in

part, see id. at 16-19, the district court on recon-

sideration granted it in full, 7d. at 14-15. The court

also severed petitioners’ counterclaim and claim of

offset. Jd. at 17.

3. The court of appeals affirmed in part and

reversed in part. With respect to the $509,800 note,

the court held that there was a material issue of fact

concerning whether FDIC-Receiver was the owner

and holder of that note. The court observed that the

endorsement referred to “Federal Deposit Insurance

Corporation * * * as Receiver of Vernon Savings &

Loan,” while FDIC had brought suit in its capacity as

Receiver of Vernon Savings & Loan Association,

F.S.A. Presumably in light of the fact that both

Vernon FSA and Old Vernon could be referred to as

Vernon Savings and Loan, the court held that there

was a genuine issue of material fact concerning the

identity of the owner and holder of the note. Pet. App.

12-13.

The court of appeals affirmed the district court’s

grant of summary judgment with respect to the

$433,000 note and guaranties. The court of appeals

held that both St. John and Howl had sufficient

personal knowledge by virtue of their positions to

testify as to FDIC-Receiver’s ownership status, Pet.

App. 11-12 & n.12, and that petitioners “failed to

produce or point to any summary judgment proof to

establish their legitimate fear that the FDIC-

Receiver is not the owner and holder of [the $433,000

note],” id. at 13.?

2 The court of appeals also affirmed the district court’s

decision to sever petitioners’ counterclaim. Pet. App. 5-7.

5 -

ARGUMENT

1. Petitioners assert that FDIC-Receiver did not

present sufficient proof of its ownership rights to

recover under the $433,000 note and guaranties and

that the court of appeals departed from settled

precedent in affirming the district court’s grant of

summary judgment to FDIC-Receiver on the note and

guaranties. Pet. 11-17.

In reviewing the sufficiency of FDIC-Receiver’s

evidence, the court of appeals applied settled law

governing the grant of summary judgment. The

court of appeals stated that “[s]ummary judgment is

appropriate if the movant demonstrates that there is

an absence of genuine issues of material fact” and

that such a showing entitles the movant to judgment —

as a matter of law under Fed. R. Civ. P. 56(c). Pet.

App. 8. The court further stated that the movant

must “identify[] portions of the record which reveal

that there are no genuine material fact issues” and

that, to overcome the motion, the nonmoving party

must come forward with “evidence in the record

sufficient to establish that there is a genuine issue of

material fact for trial.” Pet. App. 8. Those standards

are entirely in accord with this Court’s decision in

Celotex Corp. v. Catrett, 477 U.S. 317, 322-324 (1986),

which was cited by the court of appeals (Pet. App. 8),

and the invocation of those standards demonstrates

that the court of appeals correctly understood the

circumstances under which a party is entitled to

summary judgment under Rule 56.

The court of appeals correctly applied the above

standards to the facts of this case. The court

determined that FDIC-Receiver met its initial

6

evidentiary burden through affidavits establishing its

ownership of the $433,000 note and guaranties

thereon. Pet. App. 18. Although petitioners assert

(Pet. 6) that St. John’s affidavit was insufficient be-

cause it was not based on his own personal knowledge,

the court of appeals noted that his affidavit was based

on his review of FDIC-Receiver’s business records.

Pet. App. 11 n.12. The court also explained that Howl

had continuously held the post of custodian of records

for Old Vernon and its successors since 1984, before

the notes and guaranties were executed. /bid. In

light of those facts, the court found that the affidavit

testimony constituted competent evidence that

FDIC-Receiver was owner and holder of the note and

guaranties. Pet. App. 12 n.12.

Since FDIC-Receiver had proffered competent evi-

dence that it was owner and holder of the $433,000

note and guaranties, the burden shifted to petitioners

to show that there was a material issue concerning

whether FDIC-Receiver was owner or holder of the

notes. Petitioners, however, were unable to meet that

burden. Indeed, the court of appeals noted that they

“failed to produce or point to any summary judgment

proof to establish their legitimate fear that FDIC-

Receiver is not the owner and holder” of the note and

guaranties.® Pet. App. 18. Accordingly, the court of

% In addition to failing to designate any specific record

evidence showing that there was a genuine issue as to FDIC-

Receiver’s ownership of the note and guaranties, petitioners

failed to avail themselves of the opportunity to seek additional

discovery under Fed. R. Civ. P. 56(f). Had petitioners held a

legitimate concern that FDIC-Receiver did not own the obliga-

tions in its possession, they could have requested the opportu-

nity under Rule 56(f) to pursue discovery on that issue.

7

appeals properly affirmed the district court’s grant of

summary judgment in favor of FDIC-Receiver.

2. Petitioners argue that the affidavit testimony of

St. John and Howl was insufficient because it merely

established that FDIC-Receiver was in possession of

the note and guaranties, not that FDIC-Receiver was

owner or holder of the note and guaranties. Pet. 16.

See Pet. App. 9 (plaintiff must prove that it is owner

or holder). Petitioners are mistaken. As explained

above, there was competent affidavit testimony that

FDIC-Receiver owned the note and guaranties. Such

evidence, together with production of the instrument

or a copy of it, has been held sufficient under Texas

law to enforce a financial instrument against the

maker. See, e.g., State Sav. & Loan Ass’n v. Liberty

Trust Co., 863 F.2d 423, 425-426 (5th Cir. 1989); Life

Insurance Co. v. Gar-Dal, Inc., 570 S.W.2d 378, 381

(Tex. 1978) (bank officer’s affidavit averring that the

bank acquired the note and was the “sole owner and

holder” of the note was sufficient summary judgment

evidence); Gotcher v. Lamar State Bank, 714 S.W.2d

365, 370-871 (Tex. Ct. App. Beaumont 1986) (“The

entire record * * * proves that the bank was the

‘holder’ in the sense that it had possession of the

written instruments and produced them in court and

proffered them into evidence.”), writ ref’d, n.r.e. (Tex.

1987); Alexander v. Houston Oil Field Material Co.,

386 S.W.2d 540, 548-544 (Tex. Civ. App. Tyler)

(ownership could be established by a “simple affidavit

stating that [plaintiff] was the owner and holder of the

note and by attaching thereto a sworn copy of the

8

note”), writ ref’d, n.r.e. (Tex. 1965); see also Lloyd v.

Lawrence, 472 F.2d 3138, 317 (5th Cir. 1973).4

Petitioners also argue that the Fifth Circuit has

applied a more lenient summary judgment standard in

cases involving the FDIC than in other civil actions,

and they quote (Pet. 11) the court’s statement that it

sought “not to impose a standard so strict that

summary judgment would be all but impossible for

plaintiffs in cases such as these.” Pet. App. 10. Since

the court merely applied settled summary judgment

principles, petitioners’ assertion is mistaken. More-

over, the Fifth Circuit’s reference to “cases such as

these” no doubt was intended to refer back to its

earlier comment that “suits on promissory notes

provide fit grist for the summary judgment mill.” /d.

at 8 (quoting FDIC v. Cardinal Oil Well Servicing

Co., 8387 F.2d 1369, 1871 (5th Cir. 1988)). There is thus

no basis for petitioners’ claim that the Fifth Circuit

engaged in inappropriate “policy-making on behalf of

the FDIC.” Pet. 17.

3. Although petitioners assert (Pet. 12) that the

decision of the court of appeals creates a conflict

among the circuits, the only case cited by petitioners

4 The cases cited by petitioners (Pet. 16) are not to the

contrary. Lawson v. Finance America Private Brands, Inc.,

537 S.W.2d 483, 485 (Tex. Civ. App. El Paso 1976), and Texas

State Bank & Trust Co. v. St. John, 103 S.W.2d 1104, 1108

(Tex. Civ. App. El Paso 1937), writ dismissed, w.o.j. (Tex.),

establish at most that mere possession of a note is insufficient to

entitle the possessor to enforce it. Neither case addresses the

situation where, as here, the possessor of the note has

introduced competent testimony that it was the owner of the

note.

9

is RTC v. Gill, 960 F.2d 336 (8d Cir. 1992). In Gill, the

RTC as receiver of a failed thrift institution filed an

interpleader action to determine which of three

claimants—two private individuals and the IRS

owned certain funds that were in dispute. The court

of appeals reversed a grant of summary judgment for

the IRS on the ground that the IRS’s affidavits

entirely failed to address the legally dispositive issue

—whether a notice of levy was served on the thrift

institution just before or just after an account was

closed. /d. at 341-342. That ruling has no bearing on

the Fifth Cireuit’s holding in this case that FDIC-

Receiver introduced evidence showing the absence of

a material dispute concerning each element of its

‘ase.

® Petitioners also claim (Pet. 11-12) that the Fifth Circuit's

decision in this case is in conflict with its own decision in FDIC

v. McCrary, 977 F.2d 192 (5th Cir. 1992), and another, unpub-

lished decision. Each of the cases cited by petitioner turned on

its own facts, and we do not believe that the Fifth Circuit's

decisions in this area are inconsistent. In any event, further

review to resolve an intra-circuit conflict would be unwar-

ranted.

10

CONCLUSION

The petition for a writ of certiorari should be

denied.

Respectfully submitted.

WILLIAM C. BRYSON

Acting Solicitor General

JACK D. SMITH

Deputy General Counsel

ANN S. DuUROoss

Assistant General Counsel

COLLEEN B. BOMBARDIER

Senior Counsel

MICHELLE KOSSE

Counsel

Federal Deposit Insurance Corporation

APRIL 1998